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AMD: 'At heart, we're a design company'

Look, Ma! No foundry!

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Calling AMD a chipmaker is no longer accurate. The proper term is chip designer and seller.

Today was Advanced Micro Devices first day of business without its chip foundry. In the short term, little will change between AMD, the chip designer, and the Foundry Company, the chip fabrication outfit the company has spun out. But over the long haul, plenty of things can change as AMD is now free to react to market conditions and the Foundry Co. will be looking for new clients to keep its production lines ramping.

Nigel Dessau, chief marketing officer at AMD, says the relationship between AMD and the Foundry Co. is by necessity a symbiotic one, with AMD having a 34.2 per cent stake in the foundry and an equal number of voting shares as the foundry's buyer, Advanced Technology Investment Company.

ATIC is the investing arm of the government of Abu Dhabi, one of the United Arab Emirates that is flush with oil and cash - just the kind of partner you want in a chip fab. It takes billions of dollars to invest in chip manufacturing technologies and move processes forward. Moreover, Middle Eastern governments know that sooner or later, the oil runs out and they are going to need to participate in (and perhaps control) other industries. Buying AMD's fab operations makes at least as much sense as anything else Abu Dhabi might do to bootstrap a tech industry.

"AMD is at its heart a design company, not a foundry," says Dessau, who only joined AMD in March 2008 after a stint at Sun Microsystems running its storage marketing and two decades at IBM working mostly on mainframe marketing.

"It's a great business, but not for AMD. This may be a 300 million unit semiconductor market this year," Dessau concedes, talking about the global market for chips of all kinds, "but it can be a 400 million, 450 million, or even 500 million unit market five years out from now. There is no doubt in anybody's mind that the appetite for semiconductors is going to continue."

Which is why the backers of the Foundry Company, which will launch formally later this week - hopefully with a better name - would kick $825m into AMD's coffers. AMD needed the cash, to be sure. But who really needs a foundry more than a chip maker whose products are tightly tied to the next one or two generations of process technologies in their own foundries? Foundry Co. has a guaranteed customer for quite a few years.

AMD got its start back in 1969, when a bunch of ex-Fairchild Semiconductor executives formed the company and tapped Jerry Sanders to be its president (and eventually its CEO). And in 1975, the company cloned Intel's 8080 microprocessor. (Gordon Moore and Bob Noyce left Fairchild only ten months earlier than the AMD crowd to form Intel, and they have been locked in mortal combat since that time).

Back in the early days of the microprocessor (which was invented by Intel when it created the 4004 chip in 1971), being in the microprocessor business tended to mean being in the foundry business. This was not necessarily so, but it was the way Intel did it, and it is the way IBM did it with mainframes and even earlier electro-mechanical data processing equipment.

But over time as each new generation of chip making technology became more expensive, some microprocessor companies (like Sun Microsystems) decided to be fabless because of the high cost of making chips. Texas Instruments was always happy to have someone like Sun to test out its most advanced tech on large, low-volume chips. (TI has since itself decided to go fabless). Still other microprocessor makers partnered to either keep their fabs full of extra work to make them pay their way better (think IBM) or to actually get chips made by others (IBM made the last few generations of PA-RISC chips for Hewlett-Packard and still makes Unisys' mainframe engines).

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